Banking on design for steady growth

"INTERVIEW"


He came from a small town in the northern part of Karnataka but always nurtured a big ambition to do something on his own. After his schooling and graduation in engineering from Hubli, Ajit Prabhu left for the US for further studies. There he obtained Master’s degree in Mechanical Engineering from Old Dominion University, VA and a Master’s degree in Bio-Mechanical Engineering from Rensselaer Polytechnic Institute, New York.

For few years he worked in the USA with General Electric’s Corporate Research and Development Centre, in New York. But with an entrepreneurial zeal in him Prabhu along with a friend Aravind Melligeri soon founded his own company Quality Engineering and Software Technologies (QuEST) in 1997. As a CEO of the $20 million (Rs 86 crore) company, Ajit Prabhu provides the vision and strategic direction for the growth.

Deccan Herald: Please elaborate on QuEST’s main activity and domain expertise.

Ajit Prabhu: QuEST was founded in 1997 and it currently has offices in United States, United Kingdom, India, China, Italy and Japan. As a global engineering solutions provider, QuEST employs over 800 engineers, mostly in Bangalore, and supports a host of Fortune 500 clients with high-end solutions for improved product development. Our main development work is done in India.

Our services include full system and component design, analysis support, field failure investigations and solutions, and custom design tool development. Our domain expertise is in Aerospace, Energy and Power, Oil and Gas, Auto and Industrial design and analysis. We are a hardcore product development company and are purely into engineering solutions and not into IT or BPO. We support new product development. When customers plan to come out with new products, we conceptualise the design, anaylse, suggest changes and come out with new idea.

DH: How long does it take to develop a product?

AP: It depends on the type of product. An airplane design, for example, has a five year design cycle. Turbo machinery/gas turbine design will take around three years. Automotive design around two years and Industrial products like hand held meters will take about one year to develop.

DH: What was your revenues during 2004- 05?

AP: QuEST revenue for the year 2004-05 stood at $20 million. Bulk of our business comes from the aerospace, energy and oil and gas segment. These are the primary drivers of our business and about 80 per cent of the revenue comes from these three verticals. Auto sector contributes about 10 per cent of our overall revenue.

DH: Do you think Design outsourcing is going to be a big wave in India?

AP: Nasscom has estimated the world market for engineering design to be around $7 billion - $12 billion. Value of the work currently undertaken by vendors in India in this segment is miniscule at $500 million and is mostly dominated by the non-auto-motive (mostly aerospace) sector. Only about 25,000 people are involved in the Engineering Design segment.

Engineering design services addressed out of India is expected to grow at about 24 per cent per annum. The worldwide slowdown in the aerospace, automotive and industrial & power machinery sectors is resulting in thinner margins forcing global companies to outsource from lower cost geographies. So India will certainly benefit from this outsourcing wave.

DH: Why didn’t you enter the IT sector, which is growing faster that design outsourcing?

AP: By the time we entered the market, the IT market was already matured. QuEST was formed in early 1997 and by the time our company was formed the IT services industry in India had already established itself but we at QuEST stuck to engineering designing since most of our core management team came from a mechanical engineering background.

We are in a niche of product development space and the margins are better in this area.

DH: What kind of growth you are projecting for the year 2005-05?

AP: We expect to grow between 30 to 40 per cent. The turnover may touch $28 million and growth will happen from the repeat business. Accordingly staff strength will go up. We are planning to add another 250 people this year.

DH: Are you planning for an IPO?

AP: Yes we are seriously looking at an IPO. This may happen as early as February or March next year. Carlyle (a venture fund) has invested $6 million in the company and holds 24 per cent equity. The funds would also be used for infrastructure development.

DH: What kind of money are you planning to raise?

AP: We are projecting revenues of around $28 million for the FY 2005- 06 and net profit of $3.5 million. We hope, we would get valued at around 15 times the net profit.

DH: Are you looking at setting up centres out side Bangalore?

AP: The infrastructure situation in Bangalore is quite grim and commuting within the city has become one of the biggest pain points for most of the people. If we decide to grow and expand we will look at the options available to us in that point of time. Right now we have no such plans .